Munich, Germany

I’m en route this morning from Vienna to Montreal via Munich. Lufthansa is taking me home shortly on an Airbus 330-300, the fourth-largest wide-body aircraft type in its massive long-haul fleet. The airline has other monsters like the Airbus A380, Boeing 747-400 and the Airbus 340-600.

As a frequent flyer, mostly with Star Alliance, I log a few hundred thousand miles a year and rarely cash them in. I’ve used some of my points but usually find the most popular destinations are blocked very far in advance. But not on this short trip to Austria. I used my miles to travel First Class on this journey – something I would never pay for because of the exorbitant cost differential to Business Class.

I was surprised to get off the short flight from Vienna and find a Porsche four-door sedan waiting for me and whisking me off to the First Class lounge. Man, I can get used to this sort of lifestyle!

Lufthansa, in my opinion, has the best product in Europe by far. I’ve flown them all over the years – Air France, British Airways, KLM, Swiss – all fine carriers. Yet Lufthansa has the edge. Its airplanes are always clean, bright and the service is excellent. I also find the flight catering quite good – something that’s in short supply for most airlines.

Commodity Inflation

On the way over to Munich this morning from Vienna, I perused The Financial Times and read the main headlines. Commodity inflation is on the move with the United Nations’ food price index surpassing its high in 2008. Agricultural inflation is leading this round of increases and oil and gasoline are not far behind.

I’m convinced more than ever that the world’s two major central banks – the Fed and the ECB – will trail inflation when it finally hits. The Fed, without a doubt, doesn’t give a darn about inflation. Its unofficial mandate is to let the dollar sink over the long-term while it fixates on full employment.

But the ECB is a mixed-up hodge-podge of idealists who are literally lost on the direction of monetary policy and inflation targets.
The ECB, like the Fed, will fall behind the inflation curb in this cycle because of fractured credit, frail consumption and battered housing. The ECB might do something stupid over the next few months like hike lending rates right in the middle of a credit crisis and imminent debt rescheduling in the periphery.

It is cheaper for the ECB to bail out the eurozone periphery than bail out German banks. The scope for a massive Fed-style quantitative easing is high because the ECB has only purchased about $500 billion dollars’ worth of eurozone bonds; much more buying will be required.

Wages are now seriously trailing food costs and other important daily expenses, which are rising rapidly. The working class is being squeezed in the developed world and especially, in the emerging markets.

Don’t believe the nonsense the government tells you about low inflation and its irrelevant “core” rate. I challenge anyone to prove that living expenses have declined over the last 12-24 months. Prices are rising fast.

My generation will eventually suffer the worst bout of inflation since the 1970s. I just don’t know when that day of reckoning will arrive. Or perhaps, it’s already here.